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3 June 2016

Basel Aero CEO: We showed largest 3-fold increase over 9 years

Domestic traffic at Russian airports surged by 14% in 2015 following terrorist attacks in Turkey and Egypt, two of the nation’s most popular holiday destinations. Leonid Sergeyev, CEO of Basel Aero (left), discusses how Russian airports situated on the Black Sea coast coped with the sudden influx of holidaymakers.

What are the reasons behind the shift in Russian passengers’ flying patterns?

The Russian aviation sector is currently experiencing major structural changes. The recent bankruptcy of Transaero, one of the largest but loss-making carriers, has consolidated the market. The company had been ramping up toxic debts and was keen on predatory pricing for a long time. Its shutdown gave way to more competent players. Aeroflot, for example, is now Russia’s most commercially successful carrier and occupies nearly 50% of the market. In January-February 2016, 15 different Russian carriers served 90% of passengers on domestic routes.

The devaluation of the national currency together with the suspension of flights to Egypt and Turkey have also played into hands of the industry as more and more tourists head to local Russian resorts. Basel Aero, whose three out of four airports are located off the Black Sea coast, has significantly benefited from this situation.

All of the tourism agencies that were tailored for Egyptian and Turkish holidays, reoriented their tours, promotions and services toward the Black Sea resort cities, giving a major boost to the development of the hospitality industry in Sochi, Anapa and Gelendzhik. The airports of these cities, operated by Basel Aero, enjoyed soaring domestic traffic during the summer tourist season in 2015. Sochi, as an all-season resort, also saw an increase during the winter months as holidaymakers flocked to Krasnaya Polyana in the mountains, renowned for hosting the skiing competitions during the 2014 Winter Olympics.

The country’s cheap ruble also made Russian destinations attractive for inbound international tourists. There is now a steady growth of European and Asian tourists in Moscow and Saint Petersburg. Sochi, as the only Russian city with a subtropical climate and abundant sports and entertainment activities, will soon catch up.

In what ways did the surge in Russian domestic traffic benefit Basel Aero?

Basel Aero is the only Russian airport operator that has demonstrated a threefold increase in passenger numbers over the last nine years. In 2006, when the company began operating the airports in southern Russia, it handled 3.1 million passengers, while in 2015 there were 8.7 million.

Last year Basel Aero’s airports saw a robust 21% surge on domestic routes, from 6.5 to 7.9 million. Sochi International Airport demonstrated the largest growth in 2015 by serving 40% more passengers year-on-year. Key factors behind Sochi’s popularity are its Olympic legacy, Open Skies regime, and a number of high-profile events including the Formula 1 Grand Prix race, as well as an international investment forum that attracts business visitors.

Anapa International Airport has also shown steady growth over the last two years. The city is a long-time children’s resort boasting a large number of summer camps. Apart from economic and political factors, the growth of passenger traffic in Basel Aero’s airports can be attributed to the company’s efforts in attracting new carriers, increasing client service quality and streamlining business processes.

How did the decrease in international traffic affect Basel Aero?

Basel Aero’s airports, as well as other regional airports in Russia, faced a 36% decline in international traffic to 794,267 passengers in 2015. However this was balanced by an explosive growth of domestic traffic in all four airports. In 2015, our airports’ revenues increased by 15%, and net profit grew by 20%.

During the upcoming summer tourist season, we are expecting a significant growth in international traffic to Sochi as we have attracted a number of carriers that will perform both charter and regular flights from Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. On top of that, there will be new flights to Israel, Greece, Belarus and Iran.

One of the most challenging tasks for Basel Aero is establishing a direct air service with China, which we are actively negotiating on. We are in the final stages of the talks with three Chinese carriers.

Krasnodar International Airport will also expand its destination map by adding flights to Greece, Spain, Czech Republic and Austria.

How is Basel Aero coping with the increase in passenger numbers?

Sochi International Airport was the main gateway to the 2014 Winter Olympic and Paralympic Games, and gained invaluable experience coping with Olympic overloads when it served 615,000 passengers from January-March 2014. There were traditional peak periods on the days of the opening and closing ceremonies, when the airport successfully handled 24,000 passengers per day.

Now we’re facing a bigger challenge as over three million domestic passengers are expected to visit Sochi during the summer tourist season running from May-October 2016. It means we will face Olympic-sized overloads every day for at least four busy months. Our Olympic feats must become daily routine and this will require smooth operations from the airports’ systems, processes and people.

What will we do? First, we will re-create the terminal’s sector division. Second, we will adhere to passengers and baggage-handling standards adopted during the Olympics. For example, they stipulate that the waiting time for check-in does not exceed 15 minutes and the check-in of an economy class passenger takes no longer than 45 seconds. Third, we will attract additional staff from other Basel Aero airports like we did during the Olympic Games. The core team will be strengthened with local volunteers with whom we continue to work since the Olympics. Volunteers proved their efficiency in the airports’ hustle and bustle environment as all of them are young tech-savvy students, anxious to learn about the airport business and help passengers with self-check-in and navigation through the terminal.

Will we continue to see increases in domestic traffic in 2016 or do you predict that things will return to normal?

Domestic passenger traffic will definitely continue to grow. We expect that Basel Aero’s airports in the resort cities of Sochi, Anapa and Gelendzhik will be among the fastest-growing in Russia. The upcoming tourist season will again be influenced by the expensive euro and dollar, thus making Russian seaside spots more accessible for the majority of vacationers. On top of that, tourist infrastructure in these cities has significantly improved. Hundreds of hotels and restaurants have been built over the last few years.

What projects is Basel Aero currently undertaking?

Basel Aero is currently undertaking three large-scale construction projects in Anapa, Gelendzhik and Krasnodar airports. In Anapa, we have just started constructing a new 127,000ft2 terminal building with a handling capacity of 600 passengers per hour. It will operate along with the existing 54,000ft2 terminal that now serves up to 400 passengers per hour. We expect construction work to be completed by the end of 2016. Part of the US$18.6m investment will also go toward the construction of new engineering and sewage facilities.

In Gelendzhik we will invest US$7.2m to build a 60,000ft2 terminal with the capacity to handle 300 passengers per hour, twice as much as it has now, but we have yet to start construction.

The new terminal at Krasnodar International Airport will be the largest and the most expensive project because of the airport’s importance for the region and its potential for developing tourism in southern Russia. Basel Aero will invest at least US$300m in the project. It is expected to launch after the new terminals in Anapa and Gelendzhik are put into operation. We are currently selecting a contractor to design an apron and a terminal.

How have passenger expectations shaped the way that the airports are being developed?

In late 2015, we introduced an SMS-based complaint management system in the airports of Sochi and Krasnodar, where passengers were invited to share their grievances via SMS. This method turned out to be very efficient because passengers received immediate help and we were kept updated about all the minor problems in the airport.

The airports also feature interactive boards throughout the terminals that ask passengers to assess the services using emoji signs – from smiling ones to deeply upset. The tablets installed near check-in counters and inside the toilets gave us very accurate feedback and showed what needed to be improved.

As a result of our efforts, Sochi International Airport was ranked the Best Airport in Europe in the over two million passengers per annum (MPPA) category, as well as the Best Airport by Size and Region in 2-5 MPPA category at the ACI’s 2016 Airport Service Quality Awards.

What measures do you think could be taken to improve landside security at airports?

The tragedy that Brussels Airport faced in late March is an alert for airports all over the world to make sure their security system is resilient enough to divert such attacks. As an airport that coped with numerous terror threats ahead of the 2014 Sochi Olympics, we are still paying a lot of attention to the continuous improvement of the security system.

In our airports we actively use profiling and an integrated security system that proved its efficiency during the Olympics. It allows us to monitor security conditions 24/7, to proactively spot suspicious situations and to react in a timely manner. The security system comprises over 550 high-resolution surveillance cameras, a network of checkpoints for the airport’s staff featuring biometric access control systems with fingerprint and 3D-face models for restricted areas, and a recognition system for emergency situations. All information goes to the operations control center, where it is analyzed and thoroughly studied. The airports also have a three-level baggage check system supplied by Rapiscan, which has a handling capacity up to 7,000 units per hour.

All the Russian airports tightened security following the attack that targeted Moscow International Domodedovo airport in January 2011, when a suicide bomber blew himself up in the arrivals lounge, killing 37 people and injuring more than 180. Since then, all of the airports are equipped with two-stage access control systems – entrance and pre-flight security checks. Close cooperation between airports’ security authorities and Russian law enforcers add to the hi-tech security solutions.

What are Basel Aero’s plans for the future?

As a company with ambitious expansion plans, Basel Aero works to upgrade its airports in a way that their infrastructure has no limitations within a 15-20-year span. Sochi International Airport is a role model for the rest of our airports. It was totally revamped ahead of the Olympics and is now capable of handling all types of aircraft and serving up to 3,800 passengers per hour. We are also striving to boost our non-aviation revenues to catch up with global trends. Sochi has the largest share of non-aviation revenues, with approximately 30% of the overall revenues.